Markets react to Fed Chair probe

The criminal probe into Federal Reserve Chair Jerome Powell is not shaking the Treasury or the US dollar, say investment managers.

Initially, markets reacted as investors ditched the dollar for gold. But the stocks bounced back by the end of the day.

Investors were spooked when the Federal Reserve Chair confirmed on Sunday that he was under investigation.

Some believe the move is a strategic attempt by President Donald Trump to signal his discontent with Powell’s interest rate cuts, and to ensure he does not remain on the Fed’s board after his term expires in May. Though the president said he was unaware of the probe in advance.

Others, like Florian Ielpo of Lombard Odier Investment Managers, warn of deeper implications for monetary policy, where the central bank may be forced to tolerate inflation above the 2% target. Economists largely agree that politically independent, expert-led central banks tend to experience lower inflation.

Federal prosecutors had quietly launched a criminal investigation into Powell in November, focusing on cost overruns related to renovations to the Fed’s headquarters. 

Democrats, along with several Republicans in Congress, criticized the investigation.

The dollar dropped 0.25% against other currencies yesterday.

The move follows a string of indictments against Trump’s political enemies, including former FBI director James Comey, Senator Adam Schiff, and New York Attorney General Letitia James. However, many of those cases have been dismissed in court.